Currency

Exchange rate – the amount of currency in relation to the currency of another country Currency fluctuations can act as a trade barrier as well Canadian $ is most often quoted against the US $ Ex CAD $1.00 = USD $0.89 How much would USD $1.00 = CAD?

Setup the equation: CAD$1.00 CAD$?? = USD$0.89 USD$1.00 = CAD $1.12

Historically our $ has been worth less than the US$ but in recent years it has been the opposite Only in the last few months has our $ dropped lower than the US again Lowest recent value was in 2002 when CAD$1.00 reached US$0.67 On average, $100 billion of CAD is traded every day and it is the 7 th most traded currency in the world

Winners of High CAD$ Importers – anyone (consumers/companies) buying from the US can get things cheaper Canadian travellers – less expensive to travel to the US…especially Disneyworld! Professional Sports Teams – most canadian teams pay their athletes in US$ so a strong CAD$ makes their payroll actually less expensive

Losers of High CAD$ Exporters – when CAD$ is high, price of Canadian goods is more expensive to other countries, thus less is bought –Between 2002 and 2006, 189,000 manufacturing jobs were lost as loonie soared Tourism – Many americans choose not to visit Canada when CAD$ is high, hurting tourist areas and events…even Hollywood films prefer shooting in Canada and can be lost Can. Retailers – domestic retailers suffer as Canadians will cross border shop or shop using the internet to import products from other countries

Factors affecting Exchange Rate Canada has a floating exchange rate which means it is not fixed in regards to other currencies Supply and demand dictate price…more demand than supply leads to higher price (currency revaluation) and vice versa (currency devaluation) Factors: –1. Economic conditions in Canada such as inflation rate, GDP and interest rates

Inflation rate – low rate leads to investors wanting CAD$ because of price stability Low unemployment and a strong GDP signal a stable, healthy economy Interest rates – high rates attract investors to Canada The more demand for CAD$ leads to higher prices for it –2. Trading between countries – the more exports a country has vs imports, the higher demand for their $...called terms of trade

3. Politics – political stability of a country affects the value of its’ currency Ex …look at Ukraine today 4. Psychological Factors – some currencies have historical trends/faces…in times of int. upheaval, the Swiss franc is seen as a safe/refuge currency US is also seen as safe and the Euro was…less so today Stable currencies are referred to as hard currencies as they are easily converted to other currencies on world exchange markets Soft currencies such as the Russian ruble are not as easily converted

Speculating Currency speculating involves buying, holding or selling foreign currency in anticipation of its’ value changing Lots of canadian companies quote their prices in US$ to remove speculation from the equation when dealing with US customers/companies

Time Zones Last barrier to IB is simply the time of day Japan is 14 hours ahead of our time in Ontario IB is open 24 hours a day but depending upon the medium you use, it can be a problem Indian employees at call centres must work all night to answer western help calls Texts, s, podcasts, reports can be accessed anytime but may not get immediate response or action Phone calls, Skype, face to face meetings get immediate response but depend on time zones